Face It Oprah, OWN Doesn't Work Without Your Show

The Oprah Winfrey Network (OWN) is in trouble. Ratings are disappointing and CEO Christine Norman, a former MTV president, was fired in May. The joint venture between Oprah Winfrey and Discovery Channel certainly needs help, but Oprah Winfrey as CEO? That sounds like more of an indication of the seriousness of the problem than a step towards a solution.

While OWN is a joint venture between The Discovery Channel and (Oprah Winfrey’s company) Harpo Inc, a quick scan of Discovery’s latest 10-Q indicates that the terms seem to favour Harpo. Discovery has assumed all funding requirements and has provided OWN with a cumulative $216 million in funding as of March 31, 2011. Despite a 50-50 ownership split Harpo’s operational rights have led Discovery (and presumably their auditors) to determine that they are effectively minority partners. Additionally, Harpo has a put, exercisable at two and a half year increments starting January 2016, with the maximum ranging from $100 million at the first put date to $400 million at the fourth.

A recent article delved into the story behind the deal for OWN, and in many ways highlighted the challenges that are now apparent in this venture. Sadly this appears to be an instance of two parties being somewhat lost and convincing themselves that they are the answer to one another’s troubles. In 2007 David Zaslav, CEO of Discovery Communications, met with Winfrey to explain how the cable channel Discovery Health could be transformed into a 24-hour Oprah network. For Zaslav the appeal was clearly the star power of an entertainer whose show once reached a peak audience of 12.6 million, and, despite audience losses, remained very formidable. For Winfrey the appeal was an opportunity to move beyond the format of the show that made her famous.

This in not Winfrey’s first attempt at branching out; her results, however, have been mixed. She was an early investor in Oxygen, a woman-oriented cable channel, investing $20 million in 1998, but disassociated herself after disagreements with the direction of programming. Her O Magazine, launched in 2000, has been very successful, but only after some reshuffling of the executive time. Additionally, her film efforts and book club have made her a powerful presence in both Hollywood and publishing circles.

With her famous show now over, and OWN showing weakness in its ratings, the pressure from Discovery for the one surefire winner must be intense. As author Robert Kolker noted:

the only thing everyone agrees would be a hit on OWN is something like the old Oprah Winfrey Show. Without that, the network appears destined to fall short of expectations. And while Zaslav and Discovery seem increasingly eager to coax Oprah into a greater on-air role, Oprah appears willing to consider anything except that.

Apparently that “anything” includes a stint as CEO.

Winfrey’s continued resistance may be sensible for her personally, and given the deal that Harpo cut with Discovery, her financial risk seems nil, but her partner has sunk nearly a quarter billion dollars in a struggling cable channel and while I am sure they are thrilled to have the famed Oprah Winfrey working on OWN full time, I’ll bet they wish she was doing it as host of a talk show and not as chief executive.

David Johnson is a partner with ACM Partners, a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services to companies and municipalities. He can be reached at 312-505-7238 or at [email protected].